In a pithy opinion by Judge Posner, the Court found that applicable New York law prohibits a party from obtaining the benefits of a contract while failing to shoulder the burdens of that contract. By using leased railcars while failing to pay either the amounts due under the lease or other net amounts due to the Debtor under pre-petition contracts, the contract counterparty received a benefit that it was not entitled to because of its failure to perform under the contract.

Procedural context:

Appeal from decision of the District Court for the Central District of Illinois on cross-motions for summary judgment; standard of review not stated, but presumably de novo.

Facts:

Facts: Glacial Lakes Energy, LLC and its affiliate (“Glacial”) entered into contracts with the Debtor where the parties each took on certain payment obligations and Glacial assumed railcar leases and the payment obligations on those leases from the Debtor. Glacial proceeded to use the leased railcars, but did not pay the lessor for them. As of the petition date in the Debtor’s Chapter 11 case, Glacial owed the Debtor about $900,000 after the parties’ obligations were netted. Glacial then proceeded to enter into its own lease with the owner of the railcars without obtaining a release for the Debtor from its obligations with the lessor in contravention of the parties’ agreement and, as a result, the lessor received distributions valued close to $2.3 million under the Debtor’s confirmed Chapter 11 plan. Post-confirmation, the Debtor sued Glacial to recover the net amounts due it. Ruling below, the District Court found that the Debtor’s failure to pay Glacial the amounts owed it under the agreements – even though Glacial’s net obligations exceeded what the Debtor owed to it – comprised a breach of contract that prevented any recovery by the Debtor.